Delta impact: Multiple projections paint PH economic growth, but below target

MANILA, Philippines—Despite the return to year-on-year growth in the second quarter of 2021, financial institutions and economic think tanks expect the Philippine economy to grow but below target this year, especially with the threat from coronavirus’ more contagious Delta variant lurking around.

In a report on Wednesday (Aug. 11), Pantheon Macroeconomics senior Asia economist Miguel Chanco said that while the Philippines was out of recession—at least two straight quarters of year-on-year economic contraction—it was not yet out of the woods as private consumption remained weak.

“We’re looking at a continued decline in consumption in the current quarter, albeit one that is milder, due to the already low bar in the second quarter,” Chanco said.

“The reimposition of the strictest anti-virus measures in the capital this month—which we reckon is likely to be extended after the initial two weeks—will impinge further on spending,” he said, referring to the enhanced community quarantine (ECQ) brought back in Metro Manila to prevent a surge in COVID-19 cases caused by Delta, a variant of SARS Cov2 that experts said was as contagious as chicken pox.

According to the US Centers for Disease Control and Prevention (US CDC), chickenpox is 90 percent transmissible from an infected person to those who had come in close contact with him.

UK-based Pantheon Macroeconomics cut its 2021 gross domestic product (GDP) growth forecast for the Philippines to 4 percent, below the government’s 6-7 percent target range.

Separately, DBS economist Chua Han Teng said the Singapore-based bank lowered its 2021 GDP growth projection for the Philippines to 4.2 percent from 6 percent previously.

“The Delta variant does not bode well for domestic demand, amid tighter movement restrictions,” DBS said, adding that “risks that the economy could experience another quarter-on-quarter contraction in the third quarter are rising.”

While second-quarter GDP jumped 11.8 percent year-on-year from last year’s low base, April-to-June output shrank by 1.3 percent compared to the first quarter’s after National Capital Region (NCR) Plus—Metro Manila and four surrounding provinces accounting for half of the economy—was placed on ECQ for two weeks before March ended until April.

DBS also pointed to “underperformance” in the services sector which contracted by 2.8 percent quarter-on-quarter despite the 9.6 percent year-on-year growth.

“We expect [the Philippines’] GDP to return to pre-pandemic levels only in late 2022, a laggard among its Southeast Asian peers,” DBS said.

Capital Economics Asia economist Alex Holmes noted that GDP in the first half of 2021 was still “around 9-percent below its pre-crisis level and a whopping 17-percent behind its pre-crisis trend.”

“A breakdown of the data showed that private consumption was hit hardest by containment measures last quarter,” Holmes said.

“We estimate that 7.2-percent year-on-year growth is consistent with a 5-percent drop in seasonally adjusted quarter-on-quarter terms,” he said.

“Exports also fell back in quarter-on-quarter terms and, unlike in most places in Asia, remain well below their pre-crisis level due to the weakness of service exports,” Holmes said.

For Holmes, “of most concern is the Delta variant which, after previously being kept out by strict border measures, is now gaining a foothold in the country.”

“The experience of other countries in the region suggest it will be very hard to contain,” said Holmes.

“Vaccination offers a route out of the crisis. But just 10 percent of people are fully vaccinated,” he said.

“And while the pace of inoculations has picked up recently, things are still progressing too slowly for the government to hit its target of fully vaccinating 60-70 percent of the population by yearend,” Holmes said.

London-based Capital Economics also slashed its 2021 GDP growth forecast for the Philippines to 5 percent from 6 percent previously.

“That would leave GDP over 14-percent smaller by yearend than if the pandemic had never happened,” Holmes said.

ING Philippines senior economist Nicholas Mapa and Oxford Economics lead Asia economist Sian Fenner said they were also reviewing their current 2021 growth projections of 3.8 percent and 4.8 percent for the Philippines.

Rizal Commercial Banking Corp. (RCBC) chief economist Michael Ricafort said extended lockdowns could reduce his GDP growth estimate for 2021, currently at 4 to 5 percent.

Singapore-based United Overseas Bank (UOB) senior economist Julia Goh and economist Loke Siew Ting said they kept their 2021 GDP forecast for the Philippines at 5.5-percent growth, even as “the slow pace of vaccination rollout in the country might further delay the plan for relaxing lockdown restrictions and a full, safe reopening of the economy in the second half of 2021.”

Last Tuesday (Aug. 10) Socioeconomic Planning Secretary Karl Kendrick Chua said the first-half economic performance so far—with average GDP growth of 3.95 percent—supported the government’s target of 6 to 7 percent full-year GDP growth, although the economic team will revisit these numbers in light of the Delta variant’s impact on quarantine restrictions.

National Statistician Dennis Mapa said GDP needed to grow by between 8.2 percent and 10.2 percent in the second half to achieve the 2021 target.

Mapa said Philippine Statistics Authority (PSA) estimates showed first-half GDP—or the total goods and services produced in the country—amounted to P8.9 trillion during the first half, up 3.7 percent from P8.6 trillion a year ago.

However, the first-half output remained 6-percent below the P9.4 trillion during the first six months of 2019, before COVID-19 wreaked havoc on the global and domestic economies.

If GDP will grow within the 6 to 7 percent goal, nominal GDP was projected to rise to P19.85 trillion in 2021 from P17.94 trillion in 2020.

TSB